Abstract: Since the proposal of the“dual carbon”target was put forward, researchers have paid special attention to the climate risks and financial asset price risks caused by carbon dioxide emissions. As an important space and action unit for promoting low-carbon economic transformation, the urban investment bond market of cities provides an ideal experimental platform for studying carbon risk pricing. Based on the researches on the Chinese urban investment bond market, it has been found that after controlling a series of other factors as well as the fixed effects of city and time, the carbon emission intensity of cities is positively correlated with the credit spread of urban investment bonds, and this effect is significant in different industries. When using the low-carbon city pilot policy as an exogenous event shock to carbon emissions and employing the instrumental variable method to mitigate the potential endogeneity issues, the results remain robust. The mechanism test reveals that urban carbon emission intensity has an impact on the credit spread of urban investment bonds through punitive credit mechanisms and asset stranding mechanisms, indicating the particularity of carbon risk transmission pathways. Further study reveals that technological innovation in high energy consuming industries and government efforts to curb greenhouse gas emissions and promote environmental governance can both reduce the marginal impact of carbon risk on the credit spread of urban investment bonds. Therefore, government departments need to accelerate the construction of green infrastructure, capital markets should actively innovate green financing tools for urban investment, and policies are needed to incentivize city leaders to take measures to mitigate climate changes.

Key words: carbon emission, carbon risk, municipal investment bonds, credit spread